As government debt increases,a. a trade­off with government deficits is inevitable.b. government must spend a larger share of its revenue on interest payments.c. evidence suggests that spending on social insurance programs will be reduced.d. all of the aboveANSWER: b. government must spend a larger share of its revenue on interest payments.TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y7

When government receipts exceed total government spending during a fiscal year the differencea. is a budget deficit.b. is a budget surplus.c. is the national debt.d. becomes federal tax refunds.ANSWER: b. is a budget surplus.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y9

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When taxes are imposed on a commodity,a. there is never a deadweight loss.b. these taxes are considered nondistortionary.c. tax revenue will rise by the amount of the tax multiplied by the before­tax level of consumption.d. some consumers alter their consumption by not purchasing the taxed commodity.ANSWER: d. some consumers alter their consumption by not purchasing the taxed commodity.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y10

As tax laws become more complex,a. compliance costs are most likely to decrease.b. the administrative burden of taxes is increased.c. the government always collects more in tax revenue.d. the amount of tax revenue lost to tax evasion always decreases.ANSWER: b. the administrative burden of taxes is increased.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y14

If the government were to impose a tax that assigned everyone the same tax liability, it would bea. an equitable tax.b. a lump­sum tax.c. supported by the poor.d. all of the above.ANSWER: b. a lump­sum tax.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y17

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The benefits principle of taxation can be used to argue that the wealthy should pay higher taxes thanthe poor on the basis thata. the poor are more active in political processes.b. police services are more frequently used in poor neighborhoods.c. there is more crime in rich neighborhoods than poor neighborhoods.d. the wealthy benefit more from services provided by government than the poor.ANSWER: d. the wealthy benefit more from services provided by government than the poor.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y

The “flypaper theory” of taxation suggests thata. taxes are never paid by the most wealthy citizens.b. the benefits principle of taxation is not a viable option for policymakers.c. the individual or corporation who actually pays the tax cannot share the burden of the tax.d. the individual or corporation who actually pays the tax is able to shift the burden of the tax to othersANSWER: c. the individual or corporation who actually pays the tax cannot share the burden of the tax.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: Y20

Vertical equity states that taxpayers with a greater ability to pay taxes shoulda. contribute a larger amount.b. be less subject to administrative burdens of a tax.c. be less subject to tax distortions that lead to deadweight losses.d. contribute a decreasing proportion of each increment in income to taxes.ANSWER: a. contribute a larger amount.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y22

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Which of the following is a tax system in which all taxpayers pay the same percentage of their income in taxes?a. regressiveb. progressivec. proportionald. horizontal equityANSWER: c. proportionalTYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y23

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When the government levies a tax on a corporation,a. all the burden of the tax ultimately falls on owners.b. there are very few distortions to individual incentives.c. it is meeting all of the requirements for vertical equity.d. the corporation is more like a tax collector than a taxpayer.ANSWER: d. the corporation is more like a tax collector than a taxpayer.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: Y

The essence of most proposals for a flat tax are captured ina. a single, low tax rate applied to all income above a certain level.b. an initial low flat tax rate that increases as a taxpayer’s income increases.c. a single tax rate with many exemptions that provide incentives to people who save.d. a lump­sum tax that all taxpayers must pay, and then a fixed low tax rate for all income above acertain level.ANSWER: a. a single, low tax rate applied to all income above a certain level.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y25

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Incentives to work and save are reduced whena. income taxes are higher.b. Pigovian taxes are implemented.c. consumption taxes replace income taxes.d. all of the aboveANSWER: a. income taxes are higher.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 4 RANDOM: Y